Buy or rent a vacation home (initially)?

[disneysteve]

We're thinking about getting a vacation home in Florida. We can afford to buy a place, but I'm a little skeptical about how much time we'll actually spend there. Another option, of course, is to rent a place for a year as a trial run to see if we actually make use of it enough to justify having it.

There are pros and cons either way. If we buy, we can furnish it how we'd like, equip the kitchen to our liking, and really make it ours. If we rent, we'd look for a furnished place. We could still add in some good kitchenware and other little touches but it would be mostly whatever came with the place. Renting for a year, we wouldn't be contributing to our equity of course, but if the experiment shows we don't use it as much as we thought, we'd be able to walk away cleanly and not have to deal with selling the place and the furnishings. And if the experiment is a success, we can then pursue buying. I don't think prices will rise dramatically in a year and, if a recession comes along, they might even fall.

Thoughts? WWYD?

[Fishindude77]

We bought, but it was in an area we were quite familiar with. I've been vacationing in the area since childhood. My folks had a cabin on the same lake when we were kids.
Sounds like you go to this area frequently, so you must already have a good feel for the place and think it's where you want to be.

An annual rental just sounds like a costly experiment. If you want a vacation home in the area, shop around and buy when you find the right one.
If you're still unsure, I'd just continue to rent places. Nothing really wrong with either decision.

[disneysteve]

Apparently a bunch of forum posts got vaporized today in the midst of migrating servers including all of the previous replies to this thread as well as my own reply so let me try to recreate some of that.

This is completely a luxury purchase. As with all luxuries, it never makes sense financially. Nobody needs a $50,000 car or a $10,000 watch or a $200,000 vacation home. But that doesn't mean there isn't a preferred way to acquire those things. Hence this thread.

A few of you asked why we can't just keep doing short term rentals (STR) but more of them. Great question. We have been doing STR in this location once or twice a year for nearly 3 decades so we're very familiar with that process but it is entirely different than having our own place would be. Getting a STR requires researching and booking months in advance. There is no last minute travel or spontaneity possible. There is also always some degree of uncertainty as to what the place will actually look like when we arrive. We've been lucky and only had a couple of not so good experiences but we've heard loads of horror stories from others who haven't been so lucky.

With our own place, either one or both of us could head down there with very little pre-planning. If one of the airlines runs a great fare special, we could jump on it. Last time I flew to Florida, I paid $26 for my flight down, for example, and that trip was booked on very short notice (I was staying with family so didn't need accommodations) and I booked my wife twice for $55 each time (also staying with family).

Someone asked about me still working. Yes, I am still full time. The way my schedule is set up, I only need to take PTO on a Thursday in order to have 5 consecutive days off, plenty for a quick trip to Florida. I get enough PTO to do that 21 times/year, so I could theoretically spend over 100 days/year in Florida if I wanted to. Realistically, that wouldn't happen, but my wife might go down for 2-3 weeks at a time with me joining her for 5 days while we might also go down together a few times for 1-2 weeks.

Having our own place would make travel much easier as we could keep personal stuff there and just need to throw a few things in a backpack and hop on a plane. DW could also go down with a friend and not be by herself the whole time. We also have a growing list of friends who live there or are in the process of planning a move there. And it being central Florida, we know tons of people who vacation there regularly who we can meet up with when they're in town.

The big question remains if it makes sense to buy right off the bat or rent for a year. Even most of the people we know who permanently relocated there rented the first year to get a better feel for the area as a resident vs. as a tourist which can be quite different things.

[creditcardfree]

Apparently a bunch of forum posts got vaporized today in the midst of migrating servers including all of the previous replies to this thread as well as my own reply so let me try to recreate some of that.

Apparently, because I know I did comment on this thread!

Having moved a lot I would say the first year anywhere is a learning curve. For example, knowing where things are and how traffic is at certain times of day (and what areas to avoid as a result). In your shoes I would rent the first year primarily because you don't know exactly how often you will really go. Once that is established you will know if it's worth the long term investment for the convenience of last minute trips.

[scfr]

I might buy a 2nd home, or an investment home that I use on vacation, or an "I think this may become my retirement home but in the meantime I'm going to use it for vacations" home. I would NOT buy a "vacation home." If I have to spend the last half day of every visit there cleaning the thing, maintain & repair the thing, pay the bills for the thing ... when cooking meals & doing dishes there becomes a "must do" thing because I don't eat out when I'm at home, instead of a "isn't it great that I'm saving some $$ by cooking while on vacation" thing ... when I forgo opportunities to visit other locations because I can't justify that when I have a perfectly good vacation home sitting there waiting for me ... when I have to schedule my flights around making sure I can get the sheets & towels washed & dried before I leave town ... then much of the joy is sucked out of my precious vacation. No thanks.

P.S. Sorry - I just realized that you were asking if renting or buying was the better option, so my reply is a bit OT, but my honest answer is "neither."

[Jluke]

If not Florida, where else would you go?

i think you are ready to buy.

P.S. I had asked about the work situation. That is great you can get 5 days and just have to use one vacation day.

[disneysteve]

I might buy a 2nd home, or an investment home that I use on vacation, or an "I think this may become my retirement home but in the meantime I'm going to use it for vacations" home. I would NOT buy a "vacation home." If I have to spend the last half day of every visit there cleaning the thing, maintain & repair the thing, pay the bills for the thing ... when cooking meals & doing dishes there becomes a "must do" thing because I don't eat out when I'm at home, instead of a "isn't it great that I'm saving some $$ by cooking while on vacation" thing ... when I forgo opportunities to visit other locations because I can't justify that when I have a perfectly good vacation home sitting there waiting for me ... when I have to schedule my flights around making sure I can get the sheets & towels washed & dried before I leave town ... then much of the joy is sucked out of my precious vacation. No thanks.

P.S. Sorry - I just realized that you were asking if renting or buying was the better option, so my reply is a bit OT, but my honest answer is "neither."

Good thoughts here. Maintenance and repairs are certainly a consideration, though that's a big part of the reason I'd lean for a condo or possibly townhouse to limit what could need to be done. I don't think paying bills is an issue as that can likely all be handled online. I wouldn't need to do it while I was there.

Cooking is a question in my mind. We both enjoy cooking but we obviously couldn't keep a lot of perishable items around if we're only there for a few days at a time. We could leave frozen stuff though there's always the risk of power outages especially in the summer months.

I'm not concerned about us not wanting to vacation elsewhere because having the Florida home wouldn't be an added expense to what we currently spend overall each year. We'd still have the funds readily available to do other things and we both love to travel. I don't see us stopping that just because we get a house in Florida, though if we do and we're happy with that, that would be okay too.

Laundry and cleaning is not a concern. When we go now, we do the cleaning and laundry while we're there so that wouldn't really be any different. In some ways, it would even be easier because with a STR, all of the beds have to be stripped and linens washed before you check out. If it was our own place, we could leave the sheets on if we wanted to.

If we do buy, I would probably contract with a property manager to keep an eye on the place. I'm not sure if something like that can be done with a long term rental.

[kork13]

Well, in the case that getting a vacation home down in FL is a foregone conclusion (as it seems to be here), I think I'd just as soon take the time to find exactly the place you want, and buy it outright, and not bother with a 'trial run'. You've spent alot of time in the area that you're interested in, so you probably already have a decent understanding of the neighborhoods & a general feel for living there. Just approach the process like you would any other home purchase (take your time, do your research, etc.), and it'll be just fine. Worst case, you find a few years from now that this place isn't everything you thought it was cracked up to be, and you can resell it & try again.

A couple questions:
- As a luxury purchase, you're buying this vacation home in cash, correct?
- What is your long term intent? Will this eventually become your primary residence/retirement home, or do you plan to always keep New Jersey as your "home base"? That outlook may change what/where you buy.
- Are you looking at a small condo, or a standard SFH? A condo may be better/more flexible for a vacation home, since the building & grounds maintenance/repairs would be taken care of without your attention. OTOH, the larger size, privacy & independence of a SFH is appealing, especially if you eventually plan to live full-time in this house. (partly goes back to my previous question)

[disneysteve]

P.S. I had asked about the work situation. That is great you can get 5 days and just have to use one vacation day.

Yep. I'm off every Wednesday, every Friday, and every other weekend. So when I'm off for the weekend, just taking Thursday off gives me Wednesday through Sunday.

[disneysteve]

A couple questions:
- As a luxury purchase, you're buying this vacation home in cash, correct?
- What is your long term intent? Will this eventually become your primary residence/retirement home, or do you plan to always keep New Jersey as your "home base"? That outlook may change what/where you buy.
- Are you looking at a small condo, or a standard SFH? A condo may be better/more flexible for a vacation home, since the building & grounds maintenance/repairs would be taken care of without your attention. OTOH, the larger size, privacy & independence of a SFH is appealing, especially if you eventually plan to live full-time in this house. (partly goes back to my previous question)

Let me answer the 2nd and 3rd questions first.
Right now, for a vacation home, I'd much prefer a condo for exactly the reasons you said, less maintenance to worry about. We've rented condos down there many times and like them a lot. For a retirement home, we'd probably prefer a SFH on one level.

As for your 1st question, we haven't really gotten there yet. I know as a general rule luxuries shouldn't be financed but I wonder how many 2nd home buyers actually pay cash. I've read a few articles on the topic and none really give a strong reason for either way. There are some issues if you plan to rent it out but it is apparently much easier to finance if you will not rent it out. I'd certainly want to talk to our accountant and find out about the tax treatment of interest on a 2nd home. If the interest is deductible, there may be very little benefit to paying cash once you compare the effective interest rate to what we're earning leaving our money invested.

If we do finance, it would certainly be a loan that we'd pay off at a greatly accelerated rate. Once our mortgage is paid off, we will free up $1,700/month that can go to the new place. We also currently put at least another $1,000/month into our savings account. So if we throw at least $2,500/month at a new 145K mortgage for a condo it would be paid off in about 5 years. Not exactly a cash purchase but quicker than most people pay off their cars. And we have the means to pay it faster if it's advantageous to do so.

I haven't gotten to the nitty gritty number crunching part of this exercise yet.

[Thrif-t]

Have you checked out insurance rates on a Florida property? That's the one thing that would keep me from ever wanting a property there, those pesky hurricanes that seem to be popping up with more frequency and intensity. I know you said Central Fl but they get hurricanes too. I just can't imagine dealing with the devastation from actually getting hit by one of those. No thanks, but good luck to you should you decide to go for it.

[kork13]

Have you checked out insurance rates on a Florida property?

That's actually another reason I was thinking a condo would be better for a vacation home. You're only (directly) responsible for things from the drywall in, so that'll help mitigate your insurance costs. Of course, you'll have outrageous HOA fees ($300+ monthly), so have fun with that...

Steve, I was asking about paying in cash somewhat tongue-in-cheek just to give you a hard time, knowing the advice that we often dole out to folks. Realistically, we both know that a $150k-$200k vacation home is a relatively small portion of your overall financial picture, and you're rapidly approaching the point where you'll have disposable income through the nose for as long as you continue working, and then some. Happy hunting.

[Fishindude77]

To do a mortgage, my bank wanted a slightly higher interest rate than a primary residence. We put about 50% down payment then took out a 10 year mortgage, I got tired of making payments and just paid the whole thing off in the second year.
Property taxes (Michigan) are pretty high since this isn't a primary residence also. My CPA won't let me do any write offs since this is a second home, so no tax advantages. Might be different if it was rented and a business? He did tell me to track all money spent on improvements so if we made a windfall if ever sold, the improvement expenses would negate some of that.

[disneysteve]

Have you checked out insurance rates on a Florida property?

Great question. I'm in a couple of Facebook groups for people who want to move (or have already moved) to Florida. Just yesterday, I connected with someone who owns a condo in the one development we rent in all the time. I will ask her that.

[disneysteve]

Of course, you'll have outrageous HOA fees ($300+ monthly), so have fun with that...

True. The woman I was chatting with last night told me they're paying $389/month. Of course, her taxes are only $1,750/year which is pocket change compared to what we pay in NJ so it balances out to some extent. And the HOA fee pays for a lot more than our taxes do.